NSC vs Tax-Saver FD: Which Is the Better 80C Option?
Returns, taxation, liquidity, and one quirk that makes NSC more tax-efficient than people realise.
Both NSC and 5-year tax-saver FDs offer 80C deduction up to ₹1.5 lakh and have a 5-year lock-in. NSC currently pays ~7.7% vs typical bank tax-saver FD at 6.5-7%. The bigger advantage of NSC is reinvested interest also qualifying for 80C.
Quick Comparison
| Feature | NSC | Tax-Saver FD |
|---|---|---|
| Current rate | ~7.7% | 6.5-7.5% |
| Lock-in | 5 yrs | 5 yrs |
| 80C limit | ₹1.5 lakh | ₹1.5 lakh |
| Interest taxation | Slab rate (taxable) | Slab rate (taxable) |
| TDS | No TDS | 10% TDS if > ₹40k |
| 80C re-eligibility | Interest reinvested counts under 80C (yrs 1-4) | No |
The NSC Interest Trick
NSC interest is reinvested every year, not paid out. The first 4 years' interest reinvestment counts toward fresh 80C deduction in those years. So an annual NSC investment can give you slightly more 80C bandwidth than equivalent FD.
Project NSC growth: NSC Calculator → https://calculatordesk.in/nsc-calculator
Frequently Asked Questions
Is NSC interest tax-free?
No. NSC interest is fully taxable at slab rate, but no TDS is deducted. You must declare it under 'Income from Other Sources' every year, even though it's reinvested.
Can I break NSC before 5 years?
Premature encashment is allowed only on death of holder, court order, or forfeiture by a pledgee. Otherwise it's locked till maturity.
Where can I buy NSC?
Any post office. You'll need PAN, Aadhaar, photo, and address proof. Available as VIII-issue certificates in denominations of ₹100, ₹500, ₹1,000, ₹5,000, ₹10,000.